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JPMorgan’s Long-Term Market Assumptions

Nov.11 -- Thushka Maharaj, global multi-asset strategist at JPMorgan Asset Management, discusses the company’s Long-term Capital Market report which gives a 10 to 15 year view on more than 200 major asset and strategy classes. She speaks on “Bloomberg Markets: European Open.”

Video Transcript

- So when you look at things with that long term lens, what does the global growth story look like firstly? I mean, how do we recover from the pandemic? What kind of assumptions do you make?

THUSHKA MAHARAJ: Yeah, as you said, it's our 25th year. And I'm very excited today to talk about it. It is a cross platform across the whole of JP Morgan Asset Management. And you know, we've learned-- we've learned a great deal over the last three cycles in terms of how to build our long-term growth assumptions.

And the way the LTCMAs work is that we use supply side factors to build that long-term trend growth, so labor growth, productivity, and capital investment. These are the long-term drivers for us. And this year, we went through quite a long stress testing exercise, as you correctly highlight, coming out of the recession that we experienced, this very sharp recession. We are on in unusual times.

And I'd say our growth forecasts are largely unchanged. But that masks a lot of stress testing that went on under the surface. Basically, it's too early for us to make any definitive conclusions on the long-term implications of the COVID recession we've been through.

One area where we are seeing a modest change is on the inflation front. So our growth forecasts remain largely unchanged. We are expecting US growth about 1.8% in a trend basis. So that's largely unchanged. It's got a modest cyclical bonus.

But the place where there is debate and the place where we are watching for changes is on the inflation front. So we are now moving to a more coordinated world in terms of fiscal and monetary policy. And for us, that increases the risk premia we should be attaching to higher inflation outcomes.

We didn't change the base case picture for inflation. But it's more the distribution of risks around that. And I know this is quite an important topic for clients. And it's very important for the cyclical or value rotation we were talking about earlier.

To see a sustained move towards value, you need to see inflation expectations moving up and realizing inflation also move higher.

- Yes. And what do you assess then is the impact of what you call the fiscal decade? I mean, firstly, do you really have conviction that we will end up in that place, because delivering that kind of fiscal impulse in democratic environments has been difficult in the past. Do you really think that we are going to see that fiscal decade? How substantial will it be?

THUSHKA MAHARAJ: Yeah. So as you rightly point out, the politics matter in terms of fiscal spending. But what I would say is that the last 10 years we saw monetary policy being the main anchor, the main support mechanism for economies.

Looking over the next 10 to 15 years, we expect more coordination across fiscal and monetary policy. How likely is that? We think it's actually in train already in Europe with the European Recovery Fund and the cohesion that we're having on a pan-European basis for fiscal spending. And essentially the appetite to enact austerity is so much lower now than it was 10 years ago.

The US is slightly different in the sense that, you know, we need to watch what happens post this US election. But I'd say the thesis that we are likely to live with higher indebtedness over the next 10 to 15 years, whether that's on the public side or the private side, is a theme that runs across the LTCMAs. We're expecting higher indebtedness and higher fiscal spending.